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My credit score was about 800, according to my bank, which gives it to me for free on their website. I still had several years on my student loan, but I paid it off a few months ago. A couple of weeks ago my bank shows my credit score is down about 50 points from what it was. Nothing else, as far as I know, has changed in my credit history (I get notifications in email when something changes in my credit).

Is this normal?

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    Stop worrying about your credit score. – Glen Pierce Jan 11 '18 at 5:07
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    Also, your bank's estimate of your credit score is almost certainly a wild guess. They aren't pulling your credit reports, so they are literally just guessing based off of the limited data they have about you. – Glen Pierce Jan 11 '18 at 5:09
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    @GlenPierce nice assumptions. My bank gets it from Experian. – horse hair Jan 11 '18 at 15:11
  • Also 50 points is not a substantial drop. You will get the same loans at 750 as 800. – JohnFx Jan 13 '18 at 6:05
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    @GlenPierce If the bank is giving you a credit score, it almost certainly is based on your credit report, which they analyze monthly. What it is not, however, is a FICO score; the bank uses some alternate credit score formula (i.e. VantageScore). – Ben Miller Jan 13 '18 at 21:35
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Assuming nothing else changed, there's a few possibilities.

As @binarymax mentions, your credit utilization ratio may have dropped. You mention in the comments that you have zero debt, but if you have any credit cards the ratio is typically calculated from the statement balance, I believe. I've noticed my FICO can fluctuate because of that, even though I pay off all my cards in full every month. Of course, if you have no other accounts, you'd have a 0/0 utilization. I don't know how the Bureaus handle that, but 0/0 =/= 0...

Second possibility is the number of accounts. If you have vary few accounts, dropping one may be enough to significantly impact this portion of the score (though it's a small portion IIRC..)

Thirdly (and IMO most likely), dropping the student loans probably dropped the average age of your accounts. I would expect that for many people with student loans, they are one of their oldest credit accounts, if not the oldest. Age of accounts is a pretty significant factor in the FICO calculation, and it's quite possible that it just dropped by a couple of years.

  • Live on the air, a sales person from one of the credit agencies (it doesn't matter which one) tried to convince deca-millionaire and cash-only guru Dave Ramsey that everyone both needs and has a credit score. So, he went along with her and they used the agency's online tool to find his score. The tool threw an error. – pojo-guy Jan 11 '18 at 23:30
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    I have loans going back decades in my history, all of them paid off on time or early. I paid my student loan off in three years. I did carry a larger than usual balance on my cc for Christmas (I usually pay it off immediately; instead I kept it another month). But would that really bump me down 50 points? – horse hair Jan 11 '18 at 23:38
  • @pojo-guy - Dave Ramsey is probably rich enough to pay for everything with cash. – horse hair Jan 11 '18 at 23:39
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    @horsehair, could be. I had a rather large expense on one of my cards this past month as well and my score dropped 40 points. I think there's some "thresholds" that can cause a major drop, but that's pure speculation. In my case, I went from like 4% utilization to 12%. – pwcnorthrop Jan 11 '18 at 23:46
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    @horsehair - yes, the CC balance could very well affect your credit score by that much. Especially if it is a significant percentage of your overall CC credit limits. It wouldn't surprise me if after paying that off your score shoots back up. I once shot my score up 30 points in one day by making a decent size CC payment. See the "interesting side note" at the bottom of this answer for more details: money.stackexchange.com/a/77630/17718 – TTT Jan 11 '18 at 23:47
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There is not much information provided, as your FICO score is a complex algorithm with many variables.

However, This may be due to your debt/credit ratio. For example, if you had an original student loan of $10,000 and one credit card limit of $2,000, with $1000 owed to your student loan and $500 owed to your credit card, then your ratio is: ($1000+$500)/($10000+$2000)=0.125

If you pay the student loan and it is closed, you now have a ratio of: $500/$2000=0.25

Having this higher ratio may have accounted for the drop in score.

  • My ratio would be zero, with zero debt. – horse hair Jan 11 '18 at 21:29
  • Student loans are like term loans and aren't factored into the utilization percentage like you describe. – TTT Jan 11 '18 at 23:24
  • Horse hair, unless you don't ever use a credit card, it will typically show some utilization, even if you pay in full every month. – prl Jan 14 '18 at 21:00
  • @prl not if you pay in full before your statement date each month. Then it reports $0. – iheanyi Jan 15 '18 at 16:01
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Student loans are term loans which, if you have always paid them on time, help your credit score in the following ways:

  1. The loan increases your total number of active accounts that have a perfect on-time payment history.
  2. The loan increases your credit "mix". This matters more if the student loan is your only term loan.
  3. If the student loan happens to be your oldest credit account, then this is another specific positive factor for AAoA (average age of accounts).

When the loan is paid off, you lose the above advantages, and so your credit score could very well drop. But don't fret, the drop in the credit score is inconsequential in comparison to the fact that you don't have student loans anymore, and in your case, are also debt free. Well done.

  • Amateur question please - if the fact that I don't have student loans anymore and am debt free is that big of a deal, why isn't it reflected in my credit score (or at least reflected to the extent that it eclipses the drop that paying off the student loan prompted)? – horse hair Jan 11 '18 at 23:36
  • @horsehair - bc they are different things entirely. The credit score doesn't consider if you are debt free, but instead it is about the likelihood of you repaying future debts. Being debt free is a big deal because it's a lifetime achievement. Here's an example question along the same lines: "Why is winning a major professional golf tournament such a big deal if you don't have a very high score in Golden Tee?" :D – TTT Jan 11 '18 at 23:43
  • No idea of the algorithmic decisions made, but wouldn't being debt free not be an advantage to calculating how likely you are (you're not) to take on debt? – ThatWebDude Jan 15 '18 at 17:55
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    @ThatWebDude it's not about if you will take on debt, it's about the likelihood of you repaying the debt once you decide to take it on. If someone is checking your credit score, then it's probably bc you are about to become indebted to them (or could potentially be indebted like in the case of not paying rent.) – TTT Jan 15 '18 at 18:20
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http://www.fico.com/independent/?CID=70180000001TxKr&utm_medium=Scores_Independent&utm_campaign=FY18_Q1_NorAM_Homepage_Banner_Scores_Independent&utm_source=Homepage_Banner

"FICO has built analytic models for multiple markets that consider alternative data, such as bill payment and non-financial data (like mobile device and retail purchase information)"

It appears, many variables go into a FICO score. So, lets say you pay off your student loan, but cut back on spending - or moved to a different neighborhood, sold your car...your behavior will affect your FICO score.

Good question!

  • Good answers do contain links to documents/sites that provide details. But they also quote from those links/documents. – mhoran_psprep Jan 11 '18 at 21:20
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I note that you say you have zero debt. While I have never seen a true FICO score often enough to test it I have seen multiple alternative scores that can jump back and forth a fair amount (although not 50 points) based on whether my utilization that month was 0% or 1%. This was entirely from what I charged that month, I'm not carrying any debt. In reality this was .9% or 1.1%, the calculation was obviously truncating any decimals and would ding my score if that month dropped below 1.000%.

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FICO scores are based on an algorithm that takes several factors into consideration. Average age of accounts, credit mix (or the different types of credit you have), payment history (ever late/defaulted), utilization (generally only considers unsecured revolving debt, like a credit card), number of accounts, and other factors. By paying off your student loan and becoming debt free, a few things likely happened to your score, with various impacts:

  • You paid off your last term loan, which reduces your credit mix (you no longer have any term loans, being debt free).
  • You closed an account by paying down the loan, which will reduce your number of accounts (and potentially your average account age, though your comment suggests the loans only existed for 3 years, so this account age was probably a positive shift).
  • You said you let a credit balance ride at a larger than usual amount, if this pushed your utilization (amount used vs. amount offered) over a certain threshold, it will reduce your score (from what I understand, 7% or less is ideal, 30% or more is considered bad).

All in all, I would expect your score to drop. That being said, it does not matter whatsoever where your credit score lies unless you plan on acquiring new debt. If you're not applying for financing or doing anything else that requires a credit check, your credit score does not matter. You should monitor your score for fraud/abnormal activity, but beyond that, ignore its natural fluctuations until you need to open a new line of credit for something.

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The credit score is a metric of behavior model that represents only the likelihood that a lender will make a profit by doing business with you.

When you paid off your student loan, you are no longer making payments. The bank has stopped profiting from you, so the credit score drops.

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    I disagree with both parts of this answer. Credit score is about the likelihood of you repaying a debt. And FICO score factors have nothing to do with bank profitability. – TTT Jan 11 '18 at 17:21
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    Debt (and repayments) are precisely how the banks make a profit. A person who has paid off all debts and remains debt free is modeled as a bad risk precisely because they are (a) not likely to take on a debt, and (b) are likely to pay it off early, resulting in lesser bank profits. – pojo-guy Jan 11 '18 at 22:52
  • A FICO score is the end result of a statistical model of consumer behavior that impacts bank risk and (ultimately) profitability. The most profitable loans are made to people with scores are in the 600 to 700 range, because consumers will accept higher interest rates for "credit repair". The least risky loans are made to people in the 700 and above range, with the higher score representing lower risk. – pojo-guy Jan 11 '18 at 22:58
  • @pojo-guy: Not true. A banks profitability is typically measured over reserved capital in order to stay solvent, Economic Capital, which is correlated to each customers rating/risk grade/risk class, hence a customer with a very good risk grade can be just a good customer, in terms of profitability, as a high risk customer and vice versa. – ssn Jan 12 '18 at 10:10
  • There's a difference between measuring bank profitability and measuring the likelihood that a customer will provide profitable business. The FICO score is, as stated, mathematical model that predicts risk (and therefore likelihood of profitable business) for a single customer based on their historical behavior. – pojo-guy Jan 12 '18 at 16:24

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